After years of massive growth, Solo Stove’s parent company, Solo Brands, is deep in a corporate transformation. They have been experiencing the same demand challenges as the rest of the live fire industry, so they’re actively right sizing their company to support the current revenue.
Central to the restructuring is their shift to performance marketing on the SG&A side and reducing headcount. They’ve reduced force multiple times over the past couple of years, and they’ve just completed another round that included compensation adjustments.
In March, we completed a meaningful reduction in force and implemented compensation adjustments across the company. These actions are expected to generate approximately $8 million in annualized payroll savings or closer to $10 million on a fully burdened basis.
Laura Coffey, CFO of Solo Brands
Solo Brands isn’t just trying to cut their way to a stable business though. They are still focused on what brought them growth initially, that’s a focus on innovation.
They released a wider line-up of their new products from last year in Q1. It supports the diverse needs of their customers. The early results from the innovation have been positive, with increases in DTC business in April.
Late in the quarter, we saw improving trends with that momentum continuing into April, where we delivered year-over-year sales growth for Solo brands. Our March product launches have performed well at Stove division with the all-new Steelfire 22 Griddle and Summit 27 fire pit now in the top 5 selling products for DTC, while also improving our average order values.
John Larson, President and CEO of Solo Brands
They’re also focused on broadening their reach with international expansion and preserving a premium position in the market. They have the product line to differentiate from imitators, and now they are being more intentional with promotions.
Tariffs
Solo Stove products traditionally have been manufactured in China. That gave Solo Brands tremendous exposure to the high tariffs levied last April.
Traeger took a large tariff refund benefit in Q1 but hadn’t received any cash yet. From Solo Brands’ comments, they aren’t accruing it but rather are having it flow through the balance sheet and cost of goods as they receive cash refunds. They began receiving refunds this week.
On tariffs, following the U.S. Supreme Court ruling and validating tariff imposed under IEEPA, the International Emergency Economic Powers Act, we identified an opportunity to recover previously incurred costs. Approximately $2 million of the IEFA tariff-related inventory flowed through cost of goods sold in quarter 1 versus none in the prior year.
We have filed our refund claims, received confirmation from Customs and Border Protection that all but a minor number have been accepted, and this week began receiving cash refunds with $1.5 million received to date and expect a total refund of approximately $10 million for the year. Consistent with our gain contingency accounting policy, refunds are recorded as a reduction to COGS or inventory upon cash receipt.
Laura Coffey, CFO of Solo Brands
On the go forward, the lower tariff environment from last year should be a significant benefit to Solo Brands’ financial performance. The refunds will also provide them with extra liquidity this year.